Structuring a portfolio??

[Longhaul]

Are you serious??

The price you pay for a stock is a direct relation to the returns you are going to achieve!

Only meant in terms of the SP, not returns.

[steve fleming]

http://www.smh.com.au/business/marke...213-2zblz.html

a good reason why I favour a diversified portfolio approach ( 15 to 25 stocks )

No matter how good you think you are, you are never going to get it 100% right (or 90% according to Lynch).....60% if you are lucky

the downgrades referred to in the article I imagine are two of CDA, SIV and WHK/CRH, all of which were favourites of the mid-cap value investor set this time last year...no matter how quality you may think a stock is, there is always potential for a left field event to impact earnings.

for that reason, if I had my portfolio spread across just two stocks, I seriously don't think I'd be able to sleep at night.

[born2invest]

No matter how good you think you are, you are never going to get it 100% right (or 90% according to Lynch).....60% if you are lucky

for that reason, if I had my portfolio spread across just two stocks, I seriously don't think I'd be able to sleep at night.

The Mellegan fund held 1400 stocks so I'm sure a lot of them would have been poor performers.

If I held 25 stocks I couldn't sleep at night. I'm much happier with two.

[steve fleming]

If I held 25 stocks I couldn't sleep at night. I'm much happier with two.

So, on a $1m portfolio, spread equally over two stocks, realistically you could be down $250k on one earnings downgrade / negative outlook.

Its that sort of capital wipeout that I seek to avoid, for that reason I have strict $ value exposure limits to individual stocks.

[karen1]

My 2c worth.

Hi Sparky,

Great to see you dropping in regularly. Personally, I have found your latest post to have far greater value than '2c worth'!

I have gained a great deal from your post, as I have with many of yours over your time on here. It has been copied to my ST Gems list!

So, much appreciation, and hope to see many more posts from you.

[steve fleming]

Having 20 different stocks with 5% each is mindless. You would be better to give your money to Milford or Fisher Funds, or buy 4 or 5 ETFs instead.

Depends on the sort of companies that you are investing in. In the micro/small cap universe there is the potential for substantial share price re-ratings.

In these cases, it only takes just one of these 5% exposures to multi-bag to have a far greater impact on a portfolio than a lot of larger weighted holdings that that perform in line or slightly ahead of market.

Obviously a 25% holding that multi bags is even better, if you can stomach the risk of holding that sort of exposure in those type of stocks.

[born2invest]

So, on a $1m portfolio, spread equally over two stocks, realistically you could be down $250k on one earnings downgrade / negative outlook.

Its that sort of capital wipeout that I seek to avoid, for that reason I have strict $ value exposure limits to individual stocks.

Yes I could be.

[Ginger_steps_]

Thank you all for the great responses! I really value your input and varying opinions.

Snoopy your words were music to my ears which have left me feeling like I havent made a mess of things but could do with some strengthening and of course further education on the stocks I already own. After some thought I have decided the only stock Im not happy with is Snakk and will look to exit when the time is right.

Feeling more confident about my portfolio now albeit a bit "speccy" I think I will top up some more Telecom in the next year and look to take a position in Mainfreight (a bit speccy right now too?) in a time of price weakness (missed the boat a couple of weeks back!) but other than that I would like to sit back, watch and learn for the duration of 2014.

The only comment I feel strongly against is that of Born2invest's (although i agreed with most of your comments). "My 11th best idea would be no way near my 1st best idea". I think that while I have many stocks lots of them are speculative in which case diversifying them makes sense - of which I have selected my favourites and weighted them accordingly. I remember a interview I heard a while with some big investor whose name escapes me (wasn't interested in the market at that point) who said that "of 100 investments 2 usually turn out to be brilliant stocks - and usually not the 2 you were expecting." Given what has just happened with CNU (and many others before it) a 2 stock portfolio seems to be a foolish and possibly emotional investment. My older brother - a seasoned investor and very successful accountant had 2 bluechips crash in a year out of his 8 stock portfolio. 2 years later he has done well to recoup his losses - however what if they were his 2 best ideas? I think in the end the truth is that no one has a clue what is round the bend for any stock and its important to have measures in place to protect you capital - I would rather mirror the market then be broke.

Thanks again all and look forward to any other opinions investors wish to put forward.

[born2invest]

The only comment I feel strongly against is that of Born2invest's (although i agreed with most of your comments). "My 11th best idea would be no way near my 1st best idea". I think that while I have many stocks lots of them are speculative in which case diversifying them makes sense

What would make even more sense would be to not buy speculative stocks.

But I agree, I would ideally like to be more diversified and own 6-7 stocks, but I'm not going to buy either something I don't understand or something over-valued just so I can be "diversified". When the time comes and the price is right, I'll branch out and own a few more companies.

Just don't get into the trap of diversifying for the sake of diversifying.

As you will see on this chart, as you move from 1 stock to 8 stocks, you lower the risk substantially. However, from 8 stocks to 900 stocks, it doesn't make too much difference.

http://www.google.co.nz/imgres?um=1&...53&tx=71&ty=44

[BIRMANBOY]

Well thought out strategy KW....Nice to see.

Here's another slant on things. I have three portfolios. Each one has its own investing/trading strategy and rules. Each serves a different function. The aim of investing is to deliver the outcomes you want, which will vary according to each investors needs/wants. Figure out what you want/need and structure your portfolio(s) accordingly.

Portfolio 1: Income stocks. Good long term solid companies with a history of capital growth, with a dividend yield above the prevailing cost of credit. These stocks are the ones I rely on to deliver an income, regardless of what happens to my capital (ie. through market ups and downs, corrections, crashes, etc). I often reinvest gains from my other portfolio into this one as ultimately I want dividends to provide a fully self sufficient income stream that I can live on comfortably for the rest of my life. There are currently five stocks in this portfolio and I'm always looking for others to add to it as it only comprises 20% of my total capital at the moment.

Portfolio 2: Growth stocks. Stocks I believe have good long term growth prospects, that are all profitable and most of which also pay a dividend. The bulk of my money is in these stocks. And like the experts say, no matter how good you are, you will not be able to pick the outperformers 100% of the time (hey, I'm a SIV holder!) and often the ones that do perform well will be the ones that surprise you. This is because stocks that become market darlings will take off, regardless of whether or not their fundamentals justify it. I have approx 15-20 stocks in this portfolio. They require minimal attention, and I top up when market ructions present good buying opportunities. I sell them if they break their long term uptrend, but otherwise its a buy and hold portfolio and designed to achieve long term capital gains that beat the index (I aim for 15-20% returns a year). 60% of my capital is in this portfolio.

Portfolio 3: Speculative stocks. Stocks I believe that are on the cusp of rerating, have or are about to become cashflow positive and/or profitable, that present a quick trading opportunity etc. There are 10-12 stocks in this portfolio, and with these stocks I expect one or two to outperform, but I have no idea which ones will become hot copper plays, promoted by a newsletter, or purchased by a big investor, or which will discover the "next big thing" etc - whatever it is that will give the stock price wings. I just try to minimise my losses and ride the wave of the stocks that do perform. I have purchased stocks in this portfolio that I think are sure winners, only to see them go nowhere, and have passed up others as not being operationally or financially sound enough, only for those ones to go on to make massive gains. So I agree, can't pick em, don't try, spread your money around and wait to see what flies, then work it. This portfolio is for fun, something for me to do on a daily basis, and is a testing ground for trying out new trading strategies so that I can learn. I have about 20% of my total capital in this portfolio.

Anyone that thinks that holding 30-40 stocks is going to "average or mirror" the index is dreaming - there are around 2,200 stocks on the ASX, so I hold less than 2% of the market. Hopefully the better performing 2%